Download Chapter: Government

Economic Growth
David N. Weil
Chapter 12: Government
« Little else is requisite to carry a state to the highest degree of
opulence from the lowest barbarism, but peace, easy taxes,
and a tolerable administration of justice; all the rest being
brought about by the natural course of things”
Adam Smith, 1755
Jérôme Carai-Beaufils
Joanna Poënset
Presentation
• Introduction
• Defining Government’s Proper Role In The
Economy
• How Government Affects Growth?
• Why Governments Do Things That Are Bad For
Growth?
• Why Poor Countries Have Bad Governments?
• Conclusion
Introduction
•How can governments affect economic
growth?
=>looking to pairs of countries similar except
governments.
=>looking at its policies changes within a
country
• Normative and Positive Approaches
Defining Government’s Proper Role In
The Economy (1)
• The Case For Government Intervention In
The Economy
=> Market Failure
Public goods, Externalities, Monopolies and
Coordination failures
=> Income Redistribution
Defining Government’s Proper Role In
The Economy (2)
• The Case Against Government Intervention
In The Economy
Inefficiency of the Government to resolve
Market Failures
=> Equity-Efficiency Trade-Off
Defining Government’s Proper Role In
The Economy (3)
• Swings of the Pendulum
Around the 1st World War: Active Role of
Governments in Economic Development
Last Decades of 20th Century: Shift Away from
Governments Control of the Economy
How Government Affects Growth (1)?
Normative Approach
• Rule of Law
=>Rule of Law = Public Good
“Rule of Law and Factors Accumulation,
2005”
How Government Affects Growth(2)?
Normative Approach
• Rule of Law
“ Rule of Law and Productivity“
How Government Affects Growth(3)?
Normative Approach
• Taxation, Efficiency and the Size of
Government
“Effect of a Tax”
How Government Affects Growth(4)?
Normative Approach
• Taxation, Efficiency and the Size of
Government
“Growth of Government Spending 1870-2005”
How Government Affects Growth(5)?
Normative Approach
• Planning and other industrial policies
 State Enterprises
 Marketing Boards
 Trade Restrictions
Why Governments Do Things That Are
Bad For Growth(1)?
Positive Approach
• Some Others Goals:
 Population Welfare
 Prevent Further Costs in the Future
 Income Redistribution
Why Governments Do Things That Are
Bad For Growth(2)?
Positive Approach
• Corruption and Kleptocracy
“Government Corruption versus GDP per Capita, 2005”
Why Governments Do Things That Are
Bad For Growth(3)?
Positive Approach
• Self Preservation
=>Keep the Government in Power
Russia in 19th Century
Mobutu in Zaïre
=>But lack of growth can also threaten a
government’s survival
Why Poor Countries Have Bad
Governments(1)?
• Causation running from Income to
Government Quality
Bad Government have not always an
Impediment to Economic Growth
Quality of Government often Improves in
Response to Growing Income
Why Poor Countries Have Bad
Governments(2)?
• Causation running from Government Quality
to Income
=>Bad Government: A Cause rather than an
Effect of Economic Underdevelopment
=>Governments issued from Colonialism
Conclusion
• Incentives of Government Interventions
• What should the Government do?
=>Normative Approach
• Why does the Government do what it does?
=>Positive Approach
• A Bond between Poverty and Bad Governments